Charles Ponzi was a scam artist from the 1920's. He is most famous for his 1920 scheme where he conned thousands of residents of New England using a postage stamp speculation ploy. The term Ponzi Scheme was coined from this multi-million dollar scheme, the first of this type in any great proportion. He is considered one of the greatest swindlers of the 20th Century.
Charles Ponzi was born on March 3rd, 1882 to a somewhat wealthy family. He was born and raised in Lugo, Italy. Charles often embellished the truth, so not much is known about his childhood. He attended the University of Rome, and often slept during his classes. His uncle suggested that he travel to America, and try his luck there. His parents gave him a steamship ticket and $200, and he headed for America.
Charles arrived in Boston in 1903, and his life went downhill from there. He ended up landing a job with a crooked banker in Montreal, Canada. There his boss taught him the art of making quick money. He would use this later in the early 20's for his scheme. He was then arrested for check forgery, and served three years in prison. He later headed south, and was arrested for smuggling aliens across the United States border. He served two years in the Atlanta Federal Prison. Eventually, he made it back to Boston in 1917.
The Scheme:
In 1919, Charles Ponzi discovered the International Reply Coupon, a device to make it easier to send mail across the border. The coupon could be redemed for stamps in any county that belonged to the Universal Postal Union. After World War 1, the economy was suffering. The value of currency in many countries was dramatically down, but the currency in the U.S. was still holding its value. His plan would be to purchase IRCs from a suffering country at a low rate, and then exchange those IRCs for larger value stamps in the U.S.
To get started, however, he needed money to buy coupons in the first place. In order to do this, he set up the Securities Exchange Company. He promised investors a 50% return on their investments in 90 days. Unable to obtain a quick turnaround, he took the money from new investors, and used it to pay off the previous investors. He completely forgot about the IRCs, and solely relied on this method for bringing in money. This went on for eight months, bringing in a total of 15 million dollars. People were investing their life savings and even mortgaging their houses to get a piece of this investment. Early investors were taking their money and reinvesting it with Ponzi. Little effort was put forth by Ponzi to generate actual profits, and this ultimately led to the collapse of his plan. (See video: Ponzi Scheme Explained, for another look at what a Ponzi Scheme is)
On August 11th 1920, The Boston Post exposed Ponzi's scheme. After the exposure of the scheme it all fell apart. Investments stopped coming in, and previous investors could not be paid. The Boston Post won the Pulitzer Prize for exposing Charles Ponzi's scheme.Ponzi was then arrested on 86 counts of fraud, and later on being a notorious thief. Ponzi was sentenced for 14 years in jail, and remained there until he was deported back to Italy. He died in a charity hospital in Italy on charity hospital in Italy on January 18th, 1949.
A Quote:
"I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me," (Charles Ponzi).
When Charles Ponzi arrived in America, he had close to little money, but had high hopes to succeed at becoming well to do. When he stumbled upon the IRC and concocted his scheme, his hopes looked to get filled. Little did he know that his plan would collapse and he would lose everything, but he never let go of those hopes. This quote just about sums up Ponzi's life. A Modern Comparison:
Bernie Madoff was an investor who used a similar plan during the early 1990's until his arrest in December 2008. He was the founder of Bernard L. Madoff Investment Securities LLC in 1960, an investment company that was one of the top market maker businesses on Wall Street.It turns out that the starting in the early 1990's, the asset management arm of his company became a big Ponzi Scheme. Concerns of his business practices started to surface as early as 1999, but no attention was paid to them. The end came when Bernie wanted to pay out bonuses two months early, and his sons (who were working for him at the time) questioned how he could do this, especially when he had 7 billion dollars of redemptions to pay out. He told them that he had made profits through business operations. He then realized that he was finished, and admitted that whole investing arm of his company was a big Ponzi Scheme. His sons then reported him to the authorities, and was promptly arrested.
Charles Ponzi was born on March 3rd, 1882 to a somewhat wealthy family. He was born and raised in Lugo, Italy. Charles often embellished the truth, so not much is known about his childhood. He attended the University of Rome, and often slept during his classes. His uncle suggested that he travel to America, and try his luck there. His parents gave him a steamship ticket and $200, and he headed for America.
Charles arrived in Boston in 1903, and his life went downhill from there. He ended up landing a job with a crooked banker in Montreal, Canada. There his boss taught him the art of making quick money. He would use this later in the early 20's for his scheme. He was then arrested for check forgery, and served three years in prison. He later headed south, and was arrested for smuggling aliens across the United States border. He served two years in the Atlanta Federal Prison. Eventually, he made it back to Boston in 1917.
The Scheme:
In 1919, Charles Ponzi discovered the International Reply Coupon, a device to make it easier to send mail across the border. The coupon could be redemed for stamps in any county that belonged to the Universal Postal Union. After World War 1, the economy was suffering. The value of currency in many countries was dramatically down, but the currency in the U.S. was still holding its value. His plan would be to purchase IRCs from a suffering country at a low rate, and then exchange those IRCs for larger value stamps in the U.S.
To get started, however, he needed money to buy coupons in the first place. In order to do this, he set up the Securities Exchange Company. He promised investors a 50% return on their investments in 90 days. Unable to obtain a quick turnaround, he took the money from new investors, and used it to pay off the previous investors. He completely forgot about the IRCs, and solely relied on this method for bringing in money. This went on for eight months, bringing in a total of 15 million dollars. People were investing their life savings and even mortgaging their houses to get a piece of this investment. Early investors were taking their money and reinvesting it with Ponzi. Little effort was put forth by Ponzi to generate actual profits, and this ultimately led to the collapse of his plan. (See video: Ponzi Scheme Explained, for another look at what a Ponzi Scheme is)
On August 11th 1920, The Boston Post exposed Ponzi's scheme. After the exposure of the scheme it all fell apart. Investments stopped coming in, and previous investors could not be paid. The Boston Post won the Pulitzer Prize for exposing Charles Ponzi's scheme.Ponzi was then arrested on 86 counts of fraud, and later on being a notorious thief. Ponzi was sentenced for 14 years in jail, and remained there until he was deported back to Italy. He died in a charity hospital in Italy on charity hospital in Italy on January 18th, 1949.
A Quote:
"I landed in this country with $2.50 in cash and $1 million in hopes, and those hopes never left me," (Charles Ponzi).
When Charles Ponzi arrived in America, he had close to little money, but had high hopes to succeed at becoming well to do. When he stumbled upon the IRC and concocted his scheme, his hopes looked to get filled. Little did he know that his plan would collapse and he would lose everything, but he never let go of those hopes. This quote just about sums up Ponzi's life.
A Modern Comparison:
Bernie Madoff was an investor who used a similar plan during the early 1990's until his arrest in December 2008. He was the founder of Bernard L. Madoff Investment Securities LLC in 1960, an investment company that was one of the top market maker businesses on Wall Street.It turns out that the starting in the early 1990's, the asset management arm of his company became a big Ponzi Scheme. Concerns of his business practices started to surface as early as 1999, but no attention was paid to them. The end came when Bernie wanted to pay out bonuses two months early, and his sons (who were working for him at the time) questioned how he could do this, especially when he had 7 billion dollars of redemptions to pay out. He told them that he had made profits through business operations. He then realized that he was finished, and admitted that whole investing arm of his company was a big Ponzi Scheme. His sons then reported him to the authorities, and was promptly arrested.
Ponzi Scheme Explained
Resources:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atUk.QnXAvZY
http://www.washingtonpost.com/wp-dyn/articles/A63157-2005Mar24.html
http://www.pulitzer.org/awards/1921
Picture: http://www.complex.com